The SaaS world seems to love the current Life Time Value (LTV) metrics nowadays. It is undoubtedly a very important metric to measure for SaaS companies and one which is not very easy to understand.
The LTV is a strong driving force behind the steps taken by a SaaS company to allocate marketing, inbound campaign and sales budget. SaaS startups struggle a lot with LTV calculations owing to the complicated nature of the formula which is making rounds in the startup world.
For startups that just got into the market and haven’t seen a large number of customers interact with their product, they struggle with the calculations and deductions.
Most of the companies calculate Customer Acquisition Cost (CAC) and LTV through the formula given below. When we simplify this formula to justify a startup and a well-established SaaS business at the same time, here is how we can write it:
Customer Life Time Value = Average Revenue Per Account / Customer Churn Rate
This is a simple formula to calculate LTV. The average revenue per account is easy to calculate and the churn rate comes out with some commercial tools easily available in the market. However, the above formula also has some drawbacks:
- It doesn’t take into account the MRR expansion
- It considers churn rate as linear
- It takes into account the gross subscription revenue
- New businesses can’t benefit a lot from this since they have only dealt with a few customers
The trick, however, is to experiment with a 12-month LTV so that you can have a more reliable estimate. So, what steps can you take to keep these customers for longer in your SaaS business? Check out some ideas below:
Develop something special
You can easily recall companies which came up with a SaaS model so unique that it became an instant hit (ride-hailing apps, for example). It is easy to find one such company in every niche which has succeeded in accomplishing that.
When you are not the one with the special product in your niche, you have to look at other options and devise a USP which truly stands out.
The only way you can stand out is by making a special product which the user can’t find anywhere else. To go about it, you can ask yourself a few questions like:
- Is your product going to be high in demand?
- Is your solution innovative?
- How easy is it to use this solution?
- Can users easily upgrade the solutions?
- Is it optimised for mobile?
- How better are you than the competition?
About ten years ago, SaaS businesses and SaaS products were a luxury to attain. On the other hand, cloud was considered to be an almost conspiratorial force in the industry.
Today, it is the way we lead our lives. SaaS products have revolutionised our world and are teaching us how to perform every task with accuracy and efficiency. Peter Cohen puts it right:
“As the SaaS market has matured, buyers have become more knowledgeable. In some markets, they are now on the second or third generation of solutions. These companies are often replacing existing systems, not adopting automation for the first time.”
Therefore, don’t waste time in trying to convince the customers that your product is great and better than the competitors. Instead, focus on their pain points and tell them how your product solves their issues.
The best way to do this is by building detailed buyer personas which can guide you through the type of buyers you can target in your marketing campaigns.
Don’t assume results
If people are not engaging with your product, do you think it is working okay at the customer’s end? Don’t assume that everything is working fine and as per your expectations.
Have you built a strong customer support network where users and free-trial recipients can lodge complaints? If you aren’t gathering feedback regarding your product, you can’t assume that the service is smooth.
Maybe, those who faced error in the service tried to contact you but then gave up and moved on. In these cases, you have to get out there and collect feedback. Check if:
- The software is user-friendly and runs on all devices
- User support is swift
- You have a list of potential questions and their answers
- You can help the users out in genuinely solving the problem
- Take your users in the loop and encourage them to build a community around your product
Startups like Uber and Dropbox are successful because they not only used referrals, but also gave the users what they wanted from the service.
Develop a growth plan
You must have heard a lot about growth hacking your startup and leaving competitors behind, but have you ever tried developing a plan for the growth of your business?
Business owners in the SaaS world tend to forget all about marketing and sales and dream of sending their products to the shelf without a sustainable growth plan. However, the real effort lies in the vision.
People who truly want to make their business succeed will spend time and effort to chart out a plan which puts everything into the mix.
And for those aspiring startups in the SaaS world who want some funding, venture capitalists always ask for a detailed business plan before they can even give a thought to your business idea.
Tell a story
People want to hear your story. They want to know what you have to say about your brand. How did it come into existence? What turned your dream business into a reality? Customers love to relate to businesses through these stories.
People know the story behind Facebook (there was a movie made on it), and many bright kids at Harvard relate to the founders of Facebook and aspire to create something along the lines of Facebook, or better, in the future.
It makes your journey interesting. It makes you a part of the cool club where everyone loves your product and want to become its ambassador.
Listen to customer’s feedback
If you want to increase the life time value of your customers and boost revenue, notice what your customers have to say. Your company will start moving in the right direction once you start listening to your customers.
Amazon is a huge e-commerce retailer today, but back in the days when it was operating from a basement, things were not the same.
With the vision to sell everything under one e-commerce platform, Amazon’s founder Jeff Bezos developed the brand with only the customer in mind.
He also leaves a chair empty in his meetings, telling his teammates that this is the customer who should always be present. The customer is always right, so steer towards success with the customer’s feedback.
Customer Life Time Value is a valuable yet mysterious metric, and you must build it with care. The strategies mentioned above are going to help you shape a better product and allow you to focus on a superior customer experience.
At the simplest level, these are the things which will put your SaaS business in a unique position and highlight your product in the eyes of the consumer.
This estimation is solely based on the characteristics and goals of your business; so, make sure you measure it with care and grow your customer LTV.